Etsy (NASDAQ:ETSY) was one of those companies that investors loved during the pandemic. After basically treading water in 2019, the company’s shares saw massive growth last year. With online shopping surging during the pandemic, ETSY stock posted gains in the triple digits for 2020.
After peaking at an all-time high of $251.86 on Mar. 2, however, ETSY has now tumbled. Even a monster first quarter failed to halt the slide — in fact, shares fell in response. So, now trading at around $170, are Etsy shares a buying opportunity? Or is this online retailer in trouble as the country opens back up?
The primary argument against Etsy seems to boil down to this: the idea that the good times are over for e-commerce. With vaccination well underway, the economy opening back up and shoppers returning to brick-and-mortar stores, online retailers like Etsy are being predicted to see their pandemic-fueled growth come crashing down.
But is this really going to happen? I think not.
ETSY Stock: Q1 Results Impressed, Guidance Did Not
On May 5, Etsy reported earning for Q1 2021. The numbers were very impressive.
For one, gross merchandise value (GMS) on the Etsy marketplace was $2.9 billion, a 144% year-over-year (YOY) increase. An additional 16.3 million buyers also joined the marketplace. Plus, Etsy’s “habitual buyers” — shoppers who bought on six or more days, or spent over $200 on the site over the previous 12 months — grew at a record 205% YOY. Finally, revenue and earnings per share (EPS) both beat Wall Street estimates, at $550.6 million and $1 respectively.
The company’s CEO, Josh Silverman, noted the following:
“Last year the world took notice of Etsy’s highly differentiated value proposition, and that incredible momentum has continued into the first quarter of 2021.”
However, the investment world seems to have ignored these wins and instead focused on guidance, which was weaker than expected. For Q2, the company’s guidance for GMS is YOY growth between 5% and 15%. Guidance for YOY revenue growth is for somwhere between 15% and 25%.
These Q1 results not only failed to halt the ETSY stock slide — they accelerated it. The next day, ETSY dropped 15%.
Online Shopping Will Slow, But People Won’t Quit Etsy
Of course, there is no doubt whatsoever that Etsy benefited from the pandemic. The company says it added 61 million new buyers to the platform in 2020. It also had nearly 4.4 million sellers in 2020, adding some 1.7 million sellers over the course of the year.
That expansion of the Etsy marketplace continued in the first quarter of this year, albeit at a slower pace. The company’s guidance for Q2 shows it expects a slowing of growth, but we’re still talking YOY revenue growth of up to 25%. That’s hardly disastrous.
Antsy investors began bailing on ETSY stock — along with a slew of other online retailers — on Mar. 3. That’s when Texas announced it was reopening. The panic resulted in shares closing down 12.5% that day.
However, there’s plenty of evidence that the panic is unjustified. For example, one study released in April looked at 1 billion shoppers across 40 countries, with 22 billion visits to 2,000 e-commerce sites. Globally, online sales were up 58% in Q1. In the U.S., that number was 45%. Notably, that Q1 increase for the U.S. also edged the 43% uptick in online shopping from the holiday quarter. The report’s conclusion?
“The Q1 data indicates that the habits formed over the course of the year and the 2020 holiday season are here to stay.”
Bottom Line on ETSY Stock
No one expects ETSY stock to suddenly catch fire and repeat its stellar 2020 performance. However, its performance since early March reflects an overly pessimistic viewpoint.
When it comes down to it, Etsy’s huge influx of new shoppers will not abandon their accounts and go back to in-store shopping en masse. True, Etsy’s growth will slow — but it will continue. And ETSY stock — still near 2021 lows — remains well-positioned to deliver long-term growth.
On the date of publication, Louis Navellier had a long position in ETSY. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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